The key problem that I believe conservativism has to face in 2013 and the near future is that it doesn't have an answer to what has become the most critical problem for the 21st century economy: inequality.

There has been a historical tendency over the past 15 years and three Presidents to concentrate more and more wealth with the wealthy, and less and less wealth with everybody else. Inequality is at all time highs on that front, and it gives the middle and lower classes less spending money, slogs down the economy, and ultimately splits the economic pie even greater into the hands of the few.

Liberalism has a whole host of solutions, bordering from the more free market tendencies of the Democratic Party and the mainstream liberal movement, to the more socialist suggestions frequently made by the party's left wing. Some of them can be argued as legitimately good ideas (raising the minimum wage, capping the multi-billion dollar tax breaks for huge corporations, any number of investments in college education), some of them are obviously more on the fringe.

Conservativism's answer seems to be singular and ineffective: get "government out of the way," undo the massive structure of government regulation, and the economy will grow. And like a rising tide that lifts all boats (think "trickle down" economics), as the economy grows, so too will the fortunes of the lower and middle classes. Honestly, if conservativism has more of a message than this right now with regards to inequality, I've missed it.

The problem with this message, and conservativism in general right now, is that it seems outdated for 2013. As the economy has grown at times throughout the past fifteen years, the middle class and working poor have seen less and a less of a return on that progress, and the upper class has soared. In other words, the absolute core conservative response to the biggest issue affecting working Americans in 2013 is no longer applicable. It had some bearing, perhaps, in previous decades, but we now reside in an era where this dynamic no longer holds water.

Economists are reportedly attempting to figure out why that is the case. A decrease in education quality seems, to me, to be the most convincing cause, although obviously this is something that deserves a holistic analysis.

But either way, I don't really see convincing analysis that growth is enough anymore. It seems that a reduction in inequality seems now to be just as important.

Growth isn’t enough to help the middle class
By Jim Tankersley
Published: February 13

Two kinds of middle-class Americans are struggling today — people who can’t find any work or enough work, and full-timers who can’t seem to get ahead.

Democrats and Republicans prescribe economic growth to help both groups. There was a time that would have been enough. But not today.

In the past three recoveries from recession, U.S. growth has not produced anywhere close to the job and income gains that previous generations of workers enjoyed. The wealthy have continued to do well. But a percentage point of increased growth today simply delivers fewer jobs across the economy and less money in the pockets of middle-class families than an identical point of growth produced in the 40 years after World War II.

That has been painfully apparent in the current recovery. Even as the Obama administration touts the return of economic growth, millions of Americans are not seeing an accompanying revival of better, higher-paying jobs.

The consequences of this breakdown are only now dawning on many economists and have not gained widespread attention among policymakers in Washington. Many lawmakers have yet to even acknowledge the problem. But repairing this link is arguably the most critical policy challenge for anyone who wants to lift the middle class.

Economists are not clear how the economy got to the point where growth drives far less job creation and broadly shared prosperity than it used to. Some theorize that a major factor was globalization, which enabled companies to lay off highly paid workers in the United States during recessions and replace them with lower-paid ones overseas during recoveries.

There is even less agreement on policy prescriptions. Some liberal economists argue that the government should take more-aggressive steps to redistribute wealth. Many economists believe more education will improve the skills of American workers, helping them obtain higher-paying jobs. And still others say the government should seek to reduce the cost of businesses to create new jobs.

The problem is relatively new. From 1948 through 1982, recessions and recoveries followed a tight pattern. Growth plunged in the downturn, then spiked quickly, often thanks to aggressive interest rate cuts by the Federal Reserve. When growth returned, so did job creation, and workers generally shared in the spoils of new economic output.

You can see those patterns in comparisons of job creation and growth rates across post-World War II recoveries. Starting in 1949 and continuing for more than 30 years, once the economy started to grow after a recession, major job creation usually followed within about a year.

At the height of those recoveries, every percentage point of economic growth typically spurred about six-tenths of a percentage point of job growth, when compared with the start of the recovery. You could call that number the “job intensity” of growth.

The pattern began to break down in the 1992 recovery, which began under President George H.W. Bush. It took about three years — instead of one — for job creation to ramp up, even when the economy was growing. Even then, the “job intensity” of that recovery barely topped 0.4 percent, or about two-thirds the normal rate.

The next two recoveries were even worse. Three and a half years into the recovery that began in 2001 under President George W. Bush, job intensity was stuck at less than 0.2 percent. The recovery under President Obama is now up to an intensity of 0.3 percent, or about half the historical average.

Middle-class income growth looks even worse for those recoveries. From 1992 to 1994, and again from 2002 to 2004, real median household incomes fell — even though the economy grew more than 6 percent, after adjustments for inflation, in both cases. From 2009 to 2011 the economy grew more than 4 percent, but real median incomes grew by 0.5 percent.

In contrast, from 1982 to 1984, the economy grew by nearly 11 percent and real median incomes grew by 5 percent.

Today, nearly four years after the Great Recession, 12 million Americans are actively looking for work but can’t find a job; 11 million others are stuck working part time when they would like to be full time, or they would like to work but are too discouraged to job-hunt. Meanwhile, workers’ median wages were lower at the end of 2012, after adjustments for inflation, than they were at the end of 2003. Real household income was lower in 2011 than it was in 1989.

Obama alluded to the breakdown between growth and middle-class wages and jobs in his State of the Union address. “Every day,” he said, “we should ask ourselves three questions as a nation: How do we attract more jobs to our shores? How do we equip our people with the skills needed to do those jobs? And how do we make sure that hard work leads to a decent living?”

But outside of some targeted help for manufacturing jobs and some new investments in skills training, the proposals Obama offered focused comparatively little on repairing the relationship between growth and jobs, or growth and income. Obama’s boldest plans included increasing the minimum wage and guaranteeing every child a preschool education. Both aim largely at boosting poorer Americans and helping their children gain a better shot at landing the higher-paying jobs.

The Republican response to Obama’s speech did not appear to nod to the new reality at all. Sen. Marco Rubio (Fla.) said that “economic growth is the best way to help the middle class” and offered few job-creation proposals that appeared materially different from what Republican politicians have pushed since the 1980s.

Economists are still trying to sort out what broke the historical links between growth and jobs/incomes.

Economists are still trying to sort out what broke the historical links between growth and jobs/incomes.

Federal Reserve Bank of New York economists Erica Groshen and Simon Potter concluded in a 2003 paper that the recoveries from the 1990 and 2001 recessions were largely “jobless” because employers had fundamentally changed how they responded to recessions. In the past, firms laid off workers during downturns but called them back when the economy picked up again. Now, they are using recessions as a trigger to lay off less-productive workers, never to hire them back.

Economists at the liberal Economic Policy Institute trace the problem to a series of policy choices that, they say, have eroded workers’ ability to secure rising incomes. Those choices include industry deregulation and the opening of global markets on unfavorable terms for U.S. workers.

In the latest edition of their book “The State of Working America,” EPI economists argue that an “increasingly well-paid financial sector and policies regarding executive compensation fueled wage growth at the top and the rise of the top 1 percent’s incomes” at the expense of average workers.

Robert Shapiro, an economist who advised Bill Clinton on the campaign trail and in the White House, traces the change to increased global competition.

“It makes it hard for firms to pass along their cost increases — for health care, energy and so on — in higher prices,” he said. “So instead they cut other costs, starting with jobs and wages.”

Shapiro said the best way to restart job creation is to help businesses cut the costs of hiring, including by reducing the employer side of the payroll tax and pushing more aggressive efforts to hold down health-care cost increases.

Obama seems to have embraced an approach pushed by Harvard University economists Claudia Goldin and Lawrence Katz: helping more Americans graduate from college and go on to high-skilled, higher-paying jobs. It’s a longer-term bet. But as senior administration officials like to say, the problem didn’t start overnight, and it’s not likely to be solved overnight, either.

I don't think the biggest threat to the middle class is the ability of the rich to increase their wealth. I think the biggest threat to the middle class is the siren song of the entitlement state and the false god of class warfare.

Hi, the 1920's called and would like to have a word with you.

__________________
The diameter of your knowledge is the circumference of your actions. Ras Kass

New study badly undermines GOP position on sequester
Posted by Greg Sargent
on February 20, 2013 at 12:02 pm

In a rational world, a new study that came out today on income equality would constitute a major blow to the GOP argument on the sequester.

The new study was performed by Thomas Hungerford of the non-partisan Congressional Research Service. Though the study is not a CRS product, Hungerford’s data is widely cited on both sides; he’s an impeccably objective analyst.

Here’s what Hungerford found: The single greatest driver of income inequality over a recent 15 year period was runaway income from capital gains and dividends.

This finding is directly relevant to the current debate, because Obama and Democrats want to offset the sequester in part by closing loopholes enjoyed by the wealthy, such as the one that keeps tax rates on capital gains and dividends low. Dems want to do this in order to prevent a scenario where the sequester is averted only by deep spending cuts to social programs that could hurt a whole lot of poor and middle class Americans. Republicans oppose closing any such loopholes and want to avert the sequester with only deep spending cuts.

Hungerford’s report, like all serious examinations of inequality, is very complicated. He looks at a bunch of recent data on inequality from the period from 1991-2006 — measured by the so-called “Gini index” — and calculates the degree to which various factors exacerbated it. Hungerford found that over that period, the rise in the Gini index (a story that’s been widely told elsewhere, one that’s largely been driven by the runaway wealth of the top one percent and top 0.1 percent) was driven mainly by the rise in capital gains and dividends income.

“By far, the largest contributor to increasing income inequality (regardless of income inequality measure) was changes in income from capital gains and dividends,” the report concludes.

Or, as Hungerford put it in an interview with me: “The reason income inequality has been increasing has been the rising income going to the top one percent. Most of that has come in capital gains and dividends.”

In other words, wealthy beneficiaries of low tax rates on capital gains and dividends are doing extremely well — and their runaway wealth is a major driver of income inequality. There’s a lot of that money out there that could be taxed as ordinary income — as Obama and Dems want — as a way to avert the sequester, which could badly damage the economy. Republicans oppose this.

This finding comes as even some conservatives are reckoning with the fact that the GOP’s message on the sequester is deeply flawed. Writer Byron York notes today that Republicans are openly conceding that the sequester will gut the military, even as they openly point to the sequester as an acceptable policy outcome. As York argues, this has put Republicans in an “untenable position.”

If anything, that position is made worse by the new study’s finding. After all, Republicans are openly conceding the sequester will damage our national security, even as they refuse to avert it by agreeing to the closing of loopholes benefiting the wealthy — even though this would likely be part of a deal in which they got more in spending cuts than they’d be conceding in new revenues! As the new study shows, those benefiting from GOP opposition to any new revenues are doing extremely well indeed — lending more ammo to the Democratic argument that Republicans would sooner damage our military and economy than ask for a penny in new revenues from the very rich.

New study badly undermines GOP position on sequester
Posted by Greg Sargent
on February 20, 2013 at 12:02 pm

In a rational world, a new study that came out today on income equality would constitute a major blow to the GOP argument on the sequester.

The new study was performed by Thomas Hungerford of the non-partisan Congressional Research Service. Though the study is not a CRS product, Hungerford’s data is widely cited on both sides; he’s an impeccably objective analyst.

Here’s what Hungerford found: The single greatest driver of income inequality over a recent 15 year period was runaway income from capital gains and dividends.

This finding is directly relevant to the current debate, because Obama and Democrats want to offset the sequester in part by closing loopholes enjoyed by the wealthy, such as the one that keeps tax rates on capital gains and dividends low. Dems want to do this in order to prevent a scenario where the sequester is averted only by deep spending cuts to social programs that could hurt a whole lot of poor and middle class Americans. Republicans oppose closing any such loopholes and want to avert the sequester with only deep spending cuts.

Hungerford’s report, like all serious examinations of inequality, is very complicated. He looks at a bunch of recent data on inequality from the period from 1991-2006 — measured by the so-called “Gini index” — and calculates the degree to which various factors exacerbated it. Hungerford found that over that period, the rise in the Gini index (a story that’s been widely told elsewhere, one that’s largely been driven by the runaway wealth of the top one percent and top 0.1 percent) was driven mainly by the rise in capital gains and dividends income.

“By far, the largest contributor to increasing income inequality (regardless of income inequality measure) was changes in income from capital gains and dividends,” the report concludes.

Or, as Hungerford put it in an interview with me: “The reason income inequality has been increasing has been the rising income going to the top one percent. Most of that has come in capital gains and dividends.”

In other words, wealthy beneficiaries of low tax rates on capital gains and dividends are doing extremely well — and their runaway wealth is a major driver of income inequality. There’s a lot of that money out there that could be taxed as ordinary income — as Obama and Dems want — as a way to avert the sequester, which could badly damage the economy. Republicans oppose this.

This finding comes as even some conservatives are reckoning with the fact that the GOP’s message on the sequester is deeply flawed. Writer Byron York notes today that Republicans are openly conceding that the sequester will gut the military, even as they openly point to the sequester as an acceptable policy outcome. As York argues, this has put Republicans in an “untenable position.”

If anything, that position is made worse by the new study’s finding. After all, Republicans are openly conceding the sequester will damage our national security, even as they refuse to avert it by agreeing to the closing of loopholes benefiting the wealthy — even though this would likely be part of a deal in which they got more in spending cuts than they’d be conceding in new revenues! As the new study shows, those benefiting from GOP opposition to any new revenues are doing extremely well indeed — lending more ammo to the Democratic argument that Republicans would sooner damage our military and economy than ask for a penny in new revenues from the very rich.

Why is inequality bad?

__________________

"I'll see you guys in New York." ISIS Caliph Abu Bakr al-Baghdadi to US military personnel upon his release from US custody at Camp Bucca in Iraq during Obama's first year in office.

How the ultra-rich are pulling away from the ‘merely’ rich
Posted by Dylan Matthews
on February 19, 2013 at 2:56 pm

Thomas Piketty and Emmanuel Saez have for a decade now maintained the world’s best database on income inequality in various industrialized countries, and in the U.S. in particular. Their newest update (Excel), which extends the dataset to 2011, just came out last month. Here are five things to take away from it.

1. Yes, income inequality is increasing

Here’s how different groups’ shares of the income pie have changed from 1917 to 2011:

Inequality shrunk dramatically during the 1940s, stayed constant until about 1970, and since then the rich’s share of income has been growing. In 2011, 4.48 percent of all income in the United States was captured by the top 0.01 percent of Americans — a group of less than 16,000 households (or “tax units” in IRS parlance). That’s actually down from a peak of 6.04 percent in 2007. Of the top 10 years for the top 0.01 percent, eight have come since 2000; the other two were 1928 and 1929, right before the Great Depression.

2. Capital gains income is exacerbating the problem

Here’s a GIF comparing the above chart to an equivalent one that excludes capital gains income:

If you don’t look at capital gains, the top 0.01 percent only captures 3.15 percent of income in the United States. That’s about a third smaller a share as when capital gains are included. That suggests that capital gains income is exacerbating the income inequality problem.

3. The merely rich aren’t gaining ground as fast as the ultra-rich

The average member of the top 0.01 percent made $23,679,531 in 2011; the cutoff for membership in the group was $7,969,900. That’s a good deal less than 2007, when the average member of the group made $38,016,760. For comparison, the average member of the bottom 90 percent made $30,437 in 2011 and $35,173 in 2007. Because of the difference in scale, it’s hard to graph all these groups on the same scale, so I normalized them all such that their average income in 1917 equals 100:

Until the 1970s, the bottom 90 percent had actually seen its income grow more than any other income group. The income gap was shrinking. But the ultra-rich quickly reversed that trend. In 2007, the top 0.01 percent had an average income almost seven times that of 1917; the average income of the bottom 90 percent had barely tripled. The country has grown more unequal, not less, since then. And, interestingly, the 90-99th percentiles all saw their average income grow faster than all but the tippy-top of the top 1 percent. The divide between the rich and the rest isn’t the only gap growing, in other words. The gap between the ultra-rich and the merely rich is growing, too.

According to those graphs, the income inequality began to exaggerate in the 70' s, not during the 80' s. That means it was triggered by something during the Nixon administration, not Reagan. I'll give you a hint, Austrian economists warned that this would happen.

What major event were Austrian economists very vocal about during the Nixon administration? Figure that out, and you will have the cause of the growing income inequality. It isn't less progressive, more unequal tax rates.

Because it limits economic freedom, upward mobility, keeps people confined to the class they were born in, destroys the notion of being better off than your parents (average american income has gone down). You know, generally ruins the American Dream.

A capitalistic economy requires the movement of wealth through the system. A capitalistic economy requires the movement goods. If wealth is concentrated and monopolized at the very top, then that money is doing nothing for the overall economy. Its not moving through the system. It turns it from capitalism to a sorta Corporate Feudalism.

I have two questions for you:
1) Why would high levels of wealthy inequality be good?
2) If the top percent have increased their share of the economic pie, why haven't we seen any sort of trickle down?

The problem with conservatism today is that there is no conservatism. The republicans in our congress our not true conservatives except for maybe a handfull of people. Most of the republicans in congress are for more regulation and bigger expansion of the federal govt.

Because it limits economic freedom, upward mobility, keeps people confined to the class they were born in, destroys the notion of being better off than your parents (average american income has gone down). You know, generally ruins the American Dream.

A capitalistic economy requires the movement of wealth through the system. A capitalistic economy requires the movement goods. If wealth is concentrated and monopolized at the very top, then that money is doing nothing for the overall economy. Its not moving through the system. It turns it from capitalism to a sorta Corporate Feudalism.

I have two questions for you:
1) Why would high levels of wealthy inequality be good?
2) If the top percent have increased their share of the economic pie, why haven't we seen any sort of trickle down?

How does it do any of that?

For example, the top target of people who seem to think income inequality is bad is our tax code. Specifically, those people claim that our tax code isn't progressive enough and that the rates on investment income (cap gains and dividends) are too low. You're telling me that the problem with inequality is a lack of upward mobility. Increasing progressivity and increasing rates on investment income both hinder upward mobility.

So again, what's the problem with income inequality?

And since upward mobility is important to you, do you agree that we should flatten the tax code further and reduce taxes on investment income instead of increase it?

__________________

"I'll see you guys in New York." ISIS Caliph Abu Bakr al-Baghdadi to US military personnel upon his release from US custody at Camp Bucca in Iraq during Obama's first year in office.